Interim Management Statement
SEPTEMBER 26, 2008
RELEASE OF CARNIVAL CORPORATION & PLC QUARTERLY REPORT ON FORM 10-Q AND
CARNIVAL PLC INTERIM MANAGEMENT STATEMENT
FOR THE THIRD QUARTER OF 2008
-----------------------------
Carnival Corporation & plc announced its third quarter and nine month results of
operations in its earnings release issued on September 18, 2008. Carnival Corporation & plc is
hereby announcing that today it has filed a joint Quarterly Report on Form 10-Q with the U.S.
Securities and Exchange Commission ("SEC") containing the Carnival Corporation & plc 2008 third
quarter and nine month financial statements, which results remain unchanged from those
previously announced on September 18, 2008.
The information included in the attached Schedules A and B is extracted from the Form 10-Q
and has been prepared in accordance with SEC rules and regulations. Schedules A and B contain
the unaudited consolidated financial statements for Carnival Corporation & plc as of and for
the three and nine months ended August 31, 2008, together with management's discussion and
analysis of financial condition and results of operations related thereto. These Carnival
Corporation & plc consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in the United States of America ("U.S. GAAP"). Within
the Carnival Corporation and Carnival plc dual listed company structure the directors consider
the most appropriate presentation of Carnival plc's results and financial position is by
reference to the U.S. GAAP financial statements of Carnival Corporation & plc. Accordingly,
Schedules A and B are presented as Carnival plc's third quarter interim management statement,
in accordance with the requirements of the UK Disclosure and Transparency Rules.
MEDIA CONTACTS INVESTOR RELATIONS CONTACT
US US/UK
Carnival Corporation & plc Carnival Corporation & plc
Tim Gallagher Beth Roberts
+1 305 599 2600, ext. 16000 +1 305 406 4832
UK
Brunswick
Richard Jacques/Sophie Brand
+44 (0)20 7404 5959
The joint Quarterly Report on Form 10-Q (including the portion extracted for this
announcement) is available for viewing on the SEC website at www.sec.gov under Carnival
Corporation or Carnival plc or the Carnival Corporation & plc website at www.carnivalcorp.com
or www.carnivalplc.com. A copy of the joint Quarterly Report on Form 10-Q will be available
shortly at the UKLA Document Viewing Facility of the Financial Services Authority at 25 The
North Colonnade, London E14 5HS, United Kingdom.
Carnival Corporation & plc is the largest cruise vacation group in the world, with a
portfolio of cruise brands in North America, Europe and Australia, comprised of Carnival Cruise
Lines, Holland America Line, Princess Cruises, The Yachts of Seabourn, AIDA Cruises, Costa
Cruises, Cunard Line, Ibero Cruises, Ocean Village, P&O Cruises and P&O Cruises Australia.
Together, these brands operate 88 ships totaling more than 167,000 lower berths with 18
new ships scheduled to be delivered between October 2008 and June 2012. Carnival Corporation &
plc also operates Holland America Tours and Princess Tours, the leading tour companies in
Alaska and the Canadian Yukon. Traded on both the New York and London Stock Exchanges,
Carnival Corporation & plc is the only group in the world to be included in both the S&P 500
and the FTSE 100 indices.
Additional information can be obtained via Carnival Corporation & plc's website at
www.carnivalcorp.com or www.carnivalplc.com or by writing to Carnival plc at Carnival House, 5
Gainsford Street, London SE1 2NE, United Kingdom.
SCHEDULE A
CARNIVAL CORPORATION & PLC - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS UNDER U.S. GAAP
Cautionary Note Concerning Factors That May Affect Future Results
Some of the statements contained in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in this joint Quarterly Report on Form 10-Q
are "forward-looking statements" that involve risks, uncertainties and assumptions with respect
to us, including some statements concerning future results, outlook, plans, goals and other
events which have not yet occurred. These statements are intended to qualify for the safe
harbors from liability provided by Section 27A of the Securities Act of 1933 and Section 21E of
the Securities Exchange Act of 1934. We have tried, whenever possible, to identify these
statements by using words like "will," "may," "believe," "expect," "anticipate," "forecast,"
"future," "intend," "plan," and "estimate" and similar expressions.
Because forward-looking statements involve risks and uncertainties, there are many factors
that could cause our actual results, performance or achievements to differ materially from those
expressed or implied in this joint Quarterly Report on Form 10-Q. Forward-looking statements
include those statements which may impact the forecasting of our earnings per share, net revenue
yields, booking levels, pricing, occupancy, operating, financing and/or tax costs, fuel costs,
costs per available lower berth day ("ALBD"), estimates of ship depreciable lives and residual
values, outlook or business prospects. These factors include, but are not limited to, the
following:
- general economic and business conditions, including fuel price increases, and
perceptions of these conditions that may adversely impact the levels of our potential
vacationers' discretionary income and their confidence in the U.S. and other economies
and, consequently reduce our cruise brands' net revenue yields;
- the international political climate, armed conflicts and terrorist attacks and threats
thereof, and other world events affecting the safety and security of travel, could
adversely affect the demand for our cruises;
- conditions in the cruise and land-based vacation industries, including competition
from other cruise ship operators and providers of other vacation alternatives and over
capacity offered by cruise ship and land-based vacation alternatives;
- accidents, adverse weather conditions or natural disasters, such as hurricanes and
earthquakes and other incidents (including machinery and equipment failures or
improper operation thereof) which could cause the alteration of itineraries or
cancellation of a cruise or series of cruises or tours, and the impact of the spread
of contagious diseases, all of which could affect the health, safety, security and/or
vacation satisfaction of our guests;
- adverse publicity concerning the cruise industry in general, or us in particular,
could impact the demand for our cruises;
- lack of acceptance of new itineraries, products and services by our guests;
- changing consumer preferences, which may, among other things, adversely impact the
demand for cruises;
- the impact of changes in and compliance with laws and regulations relating to
environmental, health, safety, security, tax and other regulatory regimes under which
we operate;
- the impact of increased global fuel demand and pricing, a weaker U.S. dollar, fuel
supply disruptions and/or other events on our fuel and other expenses, liquidity and
credit ratings;
- the impact on our future fuel expenses of implementing proposed International Maritime
Organization regulations which, if approved, would require the use of higher priced
low sulfur fuels in certain cruising areas, which could adversely impact the cruise
industry;
- the impact of changes in operating and financing costs, including changes in foreign
currency exchange rates and interest rates and food, insurance, payroll and security
costs;
- our ability to implement our shipbuilding programs and ship refurbishments and
repairs, including purchasing ships for our North American cruise brands from European
shipyards on terms that are favorable or consistent with our expectations;
- our ability to implement our brand strategies and to continue to operate and expand
our business internationally;
- whether our future operating cash flow will be sufficient to fund future obligations,
and whether we will be able to obtain financing, if necessary, in sufficient amounts
and on terms that are favorable or consistent with our expectations;
- our ability to attract and retain qualified shipboard crew and maintain good relations
with employee unions;
- continuing financial viability of our travel agent distribution system and air service
providers;
- availability and pricing of air travel services, especially as a result of the
significant increases in air travel costs, and its impact on the demand for our
cruises;
- the impact of changes in the global credit markets on our counterparty credit risks,
including those under our derivative instruments, contingent obligations, insurance
contracts and new ship progress payment guarantees;
- the impact of our self-insuring against various risks or our inability to obtain
insurance for certain risks at reasonable rates;
- disruptions and other damages to our information technology networks;
- lack of continued availability of attractive port destinations; and
- risks associated with the DLC structure, including the uncertainty of its tax status.
Forward-looking statements should not be relied upon as a prediction of actual results.
Subject to any continuing obligations under applicable law or any relevant listing rules, we
expressly disclaim any obligation to disseminate, after the date of this joint Quarterly Report
on Form 10-Q, any updates or revisions to any such forward-looking statements to reflect any
change in expectations or events, conditions or circumstances on which any such statements are
based.
Outlook for Fourth Quarter of 2008
As of September 18, 2008, we said that we expected our diluted earnings per share for the
fourth quarter of 2008 would be in the range of $0.36 to $0.38. Our guidance was based on the
then current spot prices for fuel of $598 per metric ton for the 2008 fourth quarter. In
addition, this guidance was also based on currency exchange rates of $1.42 to the euro and $1.80
to sterling.
The year-over-year percentage increase in our ALBD capacity for the fourth quarter of 2008
and fiscal years ended 2009, 2010, 2011 and 2012, resulting primarily from new ships entering
service, is currently expected to be 8.5%, 5.8%, 7.6%, 5.8% and 3.7%, respectively. The above
percentages exclude any other future ship orders, acquisitions, retirements or sales, however
the fourth quarter does include the withdrawal from service of the Queen Elizabeth 2 ("QE2") in
November 2008.
Seasonality and Critical Accounting Estimates
Our revenues from the sale of passenger tickets are seasonal. Historically, demand for
cruises has been greatest during our third fiscal quarter, which includes the Northern
Hemisphere summer months, and holidays. This higher demand during the third quarter and
holidays results in higher net revenue yields and, accordingly, the largest share of our net
income is earned during these periods. The seasonality of our results is increased due to ships
being taken out of service for maintenance, which we typically schedule during non-peak demand
periods. In addition, substantially all of Holland America Tours' and Princess Tours' revenues
and net income are generated from May through September in conjunction with the Alaska cruise
season.
For a discussion of our critical accounting estimates, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations," which is included in Carnival
Corporation & plc's 2007 joint Annual Report on Form 10-K.
Selected Cruise Information
Selected cruise information was as follows:
Three Months Nine Months
Ended August 31, Ended August 31,
2008 2007 2008 2007
---- ---- ---- ----
Passengers carried (in thousands) 2,322 2,203 6,218 5,785
----- ----- ----- -----
Occupancy percentage (a) 110.9% 111.1% 106.8% 106.4%
----- ----- ----- -----
Fuel consumption (metric tons in thousands) 795 765 2,383 2,251
--- --- ----- -----
Fuel cost per metric ton (b) $ 666 $ 376 $ 565 $ 337
-------- -------- -------- --------
Currency
Euro $1.54:€1 $1.36:€1 $1.53:€1 $1.34:€1
-------- -------- -------- --------
Sterling $1.95:£1 $2.01:£1 $1.97:£1 $1.98:£1
-------- -------- -------- --------
(a) In accordance with cruise industry practice, occupancy is calculated using a
denominator of two passengers per cabin even though some cabins can accommodate three
or more passengers. Percentages in excess of 100% indicate that on average more than
two passengers occupied some cabins.
(b) Fuel cost per metric ton is calculated by dividing the cost of our fuel by the
number of metric tons consumed.
Three Months Ended August 31, 2008 ("2008") Compared to the Three Months Ended August 31, 2007
("2007")
Revenues
Our total revenues increased $493 million, or 11.4%, from $4.3 billion in 2007 to $4.8
billion in 2008. Of this increase, $353 million was capacity driven by our 8.8% increase in
ALBDs (see "Key Performance Non-GAAP Financial Indicators") and the remaining increase of $140
million was primarily due to increases in cruise ticket pricing, including the implementation of
our fuel supplements, and the impact of the weaker U.S. dollar against the euro compared to
2007. Our capacity increased 1.5% for our North American cruise brands and 24.3% for our
European cruise brands in 2008 compared to 2007, as we continue to implement our planned
strategy of expanding in the European cruise marketplace.
Onboard and other revenues included concessionaire revenues of $292 million in 2008 and
$264 million in 2007. Onboard and other revenues increased in 2008 compared to 2007, primarily
because of the 8.8% increase in ALBDs.
Costs and Expenses
Operating costs increased $445 million, or 20.3%, from $2.2 billion in 2007 to $2.6 billion
in 2008. Of this increase, $174 million was capacity driven by our 8.8% increase in ALBDs, and
the remaining increase of $271 million was primarily due to increased fuel costs and the weaker
U.S. dollar against the euro compared to 2007.
Selling and administration expenses increased $9 million, or 2.5%, from $363 million in
2007 to $372 million in 2008. Of this increase, $31 million was capacity driven by our 8.8%
increase in ALBDs, partially offset by a $26 million gain from a hurricane insurance settlement
for damages to our Cozumel, Mexico port facilities in 2005.
Depreciation and amortization expense increased $44 million, or 15.8%, from $279 million in
2007 to $323 million in 2008, largely due to the 8.8% increase in ALBDs through the addition of
new ships, the weaker U.S. dollar compared to the euro and additional ship improvement
expenditures.
Our total costs and expenses rose from 65.5% in 2007, as a percentage of revenues, to 69.2%
in 2008.
Operating Income
Our operating income decreased only $5 million primarily due to our higher fuel costs being
offset by increased fleet capacity and the effect of improved cruise ticket pricing.
Nonoperating (Expense) Income
Net interest expense, excluding capitalized interest, increased $27 million to $112 million
in 2008 from $85 million in 2007. This increase was primarily due to a $13 million increase in
interest expense from a higher level of average borrowings, an $11 million decrease in interest
income primarily due to a lower average level of invested cash and a $3 million decrease from
lower average interest rates on invested cash.
Income Taxes
Income tax expense increased $13 million to $52 million in 2008 from $39 million in 2007,
primarily because of the Mexican deferred income tax expense related to our hurricane insurance
settlement. During both the third quarter of 2008 and 2007, we have recorded tax expenses
generated by the seasonal operations of our Alaska tour operations.
Key Performance Non-GAAP Financial Indicators
ALBDs is a standard measure of passenger capacity for the period, which we use to perform
rate and capacity variance analyses to determine what are the main non-capacity driven factors
that cause our cruise revenues and expenses to vary. ALBDs assume that each cabin we offer for
sale accommodates two passengers and is computed by multiplying passenger capacity by revenue-
producing ship operating days in the period.
We use net cruise revenues per ALBD ("net revenue yields") and net cruise costs per ALBD as
significant non-GAAP financial measures of our cruise segment financial performance. These
measures enable us to separate the impact of predictable capacity changes from the more
unpredictable rate changes that affect our business. We believe these non-GAAP measures provide
a better gauge to measure our revenue and cost performance instead of the standard U.S. GAAP-
based financial measures. There are no specific rules for determining our non-GAAP financial
measures and, accordingly, it is possible that they may not be exactly comparable to the like-
kind information presented by other cruise companies, which is a potential risk associated with
using them to compare us to other cruise companies.
Net revenue yields are commonly used in the cruise industry to measure a company's cruise
segment revenue performance and for revenue management purposes. We use "net cruise revenues"
rather than "gross cruise revenues" to calculate net revenue yields. We believe that net cruise
revenues is a more meaningful measure in determining revenue yield than gross cruise revenues
because it reflects the cruise revenues earned net of our most significant variable costs, which
are travel agent commissions, cost of air transportation and certain other variable direct costs
associated with onboard and other revenues. Substantially all of our remaining cruise costs are
largely fixed, except for the impact of changing prices, once our ship capacity levels have been
determined.
Net cruise costs per ALBD is the most significant measure we use to monitor our ability to
control our cruise segment costs rather than gross cruise costs per ALBD. We exclude the same
variable costs that are included in the calculation of net cruise revenues to calculate net
cruise costs to avoid duplicating these variable costs in these two non-GAAP financial measures.
In addition, because a significant portion of our operations utilize the euro or sterling
to measure their results and financial condition, the translation of those operations to our
U.S. dollar reporting currency results in increases in reported U.S. dollar revenues and
expenses if the U.S. dollar weakens against these foreign currencies, and decreases in reported
U.S. dollar revenues and expenses if the U.S. dollar strengthens against these foreign
currencies. Accordingly, we also monitor and report our two non-GAAP financial measures
assuming the current period currency exchange rates have remained constant with the prior year's
comparable period rates, or on a "constant dollar basis," in order to remove the impact of
changes in exchange rates on our non-U.S. dollar cruise operations. We believe that this is a
useful measure since it facilitates a comparative view of the growth of our business in a
fluctuating currency exchange rate environment.
Gross and net revenue yields were computed by dividing the gross or net revenues, without
rounding, by ALBDs as follows:
Three Months Ended August 31,
---------------------------------
2008
Constant
2008 Dollar 2007
---- ------ ----
(in millions, except ALBDs and yields)
Cruise revenues
Passenger tickets $3,658 $3,556 $3,206
Onboard and other 864 846 816
------ ------ ------
Gross cruise revenues 4,522 4,402 4,022
Less cruise costs
Commissions, transportation and other (660) (641) (583)
Onboard and other (134) (132) (146)
------ ------ ------
Net cruise revenues $3,728 $3,629 $3,293
------ ------ ------
ALBDs 15,392,070 15,392,070 14,150,152
---------- ---------- ----------
Gross revenue yields $293.82 $286.02 $284.20
------- ------- -------
Net revenue yields $242.27 $235.79 $232.68
------- ------- -------
Gross and net cruise costs per ALBD were computed by dividing the gross or net cruise
costs, without rounding, by ALBDs as follows:
Three Months Ended August 31,
---------------------------------
2008
Constant
2008 Dollar 2007
---- ------ ----
(in millions, except ALBDs and costs per ALBD)
Cruise operating expenses $2,440 $2,393 $1,988
Cruise selling and administrative expenses 364 355 355
------ ------ ------
Gross cruise costs 2,804 2,748 2,343
Less cruise costs included in net cruise
revenues
Commissions, transportation and other (660) (641) (583)
Onboard and other (134) (132) (146)
------ ------ ------
Net cruise costs $2,010 $1,975 $1,614
------ ------ ------
ALBDs 15,392,070 15,392,070 14,150,152
---------- ---------- ----------
Gross cruise costs per ALBD $182.17 $178.56 $165.52
------- ------- -------
Net cruise costs per ALBD $130.62 $128.33 $114.00
------- ------- -------
Net cruise revenues increased $435 million, or 13.2%, to $3.7 billion in 2008 from $3.3
billion in 2007. The 8.8% increase in ALBDs between 2008 and 2007 accounted for $289 million of
the increase, and the remaining $146 million was from increased net revenue yields, which
increased 4.1% in 2008 compared to 2007 (gross revenue yields also increased by 3.4%). Net
revenue yields increased in 2008 primarily due to higher North American brand ticket prices and
the weaker U.S. dollar relative to the euro, partially offset by lower ticket pricing in Europe.
Net revenue yields as measured on a constant dollar basis increased 1.3% in 2008 compared to
2007, which was comprised of a 2.2% increase in passenger ticket yields, substantially all from
our North American brands, partially offset by a 2.1% decrease in onboard and other revenue
yields, which was largely the result of the significant increase in our European brands'
capacity and the fourth quarter 2007 acquisition of Ibero Cruises, as they typically have lower
onboard and other revenue yields and a decrease in substantially all of our brands' onboard
yields. Gross cruise revenues increased $500 million, or 12.4%, to $4.5 billion in 2008 from
$4.0 billion in 2007 for largely the same reasons as discussed above for net cruise revenues.
Net cruise costs increased $396 million, or 24.5%, to $2.0 billion in 2008 from $1.6
billion in 2007. The 8.8% increase in ALBDs between 2008 and 2007 accounted for $141 million of
the increase. The balance of $255 million was from increased net cruise costs per ALBD, which
increased 14.6% in 2008 compared to 2007 (gross cruise costs per ALBD increased 10.1%). This
14.6% increase was primarily due to a 77.1% per metric ton increase in fuel cost to $666 per
metric ton in 2008, which resulted in an increase in fuel expense of $230 million compared to
2007 and a weaker U.S. dollar relative to the euro. These increases were partially offset by
$26 million received upon settlement of an insurance claim, the non-recurrence in 2008 of the
2007 $18 million expense related to the Merchant Navy Officers Pension Fund and lower selling
and administrative expenses, due largely to savings achieved through economies of scale and cost
control measures. Net cruise costs per ALBD as measured on a constant dollar basis increased
12.6% in 2008 compared to 2007. On a constant dollar basis, net cruise costs per ALBD,
excluding fuel and dry-dock costs were flat, compared to 2007. Gross cruise costs increased
$461 million, or 19.7%, in 2008 to $2.8 billion from $2.3 billion in 2007 for largely the same
reasons as discussed above for net cruise costs.
Nine months ended August 31, 2008 ("2008") Compared to the nine months ended August 31, 2007
("2007")
Revenues
Our total revenues increased $1.4 billion, or 14.5%, from $9.9 billion in 2007 to $11.3
billion in 2008. Of this increase, $876 million was capacity driven by our 9.2% increase in
ALBDs and the remaining increase of $559 million was primarily due to increases in cruise ticket
pricing, including the implementation of our fuel supplements, and the impact of the weaker U.S.
dollar against the euro compared to 2007. Our capacity increased 3.2% for our North American
cruise brands and 22.8% for our European cruise brands in 2008 compared to 2007.
Onboard and other revenues included concessionaire revenues of $698 million in 2008 and
$626 million in 2007. Onboard and other revenues increased in 2008 compared to 2007, primarily
because of the 9.2% increase in ALBDs.
Costs and Expenses
Operating costs increased $1.3 billion, or 22.4%, from $5.6 billion in 2007 to $6.9 billion
in 2008. Of this increase, $493 million was capacity driven by our 9.2% increase in ALBDs and
the balance of the increase of $771 million was primarily due to increased fuel costs, the
weaker U.S. dollar against the euro and increased travel agent commissions on higher ticket
revenues compared to 2007.
Selling and administration expenses increased $69 million, or 6.0%. Of this increase, $104
million was capacity driven by our 9.2% increase in ALBDs and $35 million was from the impact of
the weaker U. S. dollar against the euro, partially offset by a $26 million gain from our
hurricane insurance settlement and by savings achieved through economies of scale and cost
control measures undertaken during this difficult economic environment.
Depreciation and amortization expense increased $125 million, or 15.4%, from $811 million
in 2007 to $936 million in 2008, largely due to the 9.2% increase in ALBDs through the addition
of new ships, the weaker U.S. dollar compared to the euro and additional ship improvement
expenditures.
Our total costs and expenses rose from 76.8% in 2007, as a percentage of revenues, to 79.9%
in 2008.
Operating Income
Our operating income decreased $23 million, or 1.0%, primarily due to our higher fuel costs
partially offset by our increased fleet capacity and improved cruise ticket pricing.
Nonoperating (Expense) Income
Net interest expense, excluding capitalized interest, increased $59 million to $317 million
in 2008 from $258 million in 2007. This increase was primarily due to a $45 million increase in
interest expense from a higher level of average borrowings, a $17 million decrease in interest
income primarily due to a lower average level of invested cash, partially offset by a $3 million
decrease from lower average interest rates on average borrowings. Capitalized interest
increased $8 million during 2008 compared to 2007 primarily due to higher average levels of
investment in ship construction projects.
Income Taxes
Income tax expense increased $22 million to $48 million in 2008 from $26 million in 2007
primarily because 2007 included the reversal of previously recorded deferred tax valuation
allowances and uncertain tax position liabilities, which were no longer required, and Mexican
deferred income taxes on our insurance settlement gain.
Key Performance Non-GAAP Financial Indicators
Gross and net revenue yields were computed by dividing the gross or net revenues, without
rounding, by ALBDs as follows:
Nine months ended August 31,
---------------------------------
2008
Constant
2008 Dollar 2007
---- ------ ----
(in millions, except ALBDs and yields)
Cruise revenues
Passenger tickets $8,684 $8,417 $7,437
Onboard and other 2,309 2,256 2,120
------ ------ ------
Gross cruise revenues 10,993 10,673 9,557
Less cruise costs
Commissions, transportation and other (1,743) (1,683) (1,493)
Onboard and other (380) (372) (366)
------ ------ ------
Net cruise revenues $8,870 $8,618 $7,698
------ ------- ------
ALBDs 44,034,240 44,034,240 40,338,081
---------- ---------- ----------
Gross revenue yields $249.65 $242.39 $236.91
------- ------- -------
Net revenue yields $201.45 $195.72 $190.83
------- ------- -------
Gross and net cruise costs per ALBD were computed by dividing the gross or net cruise
costs, without rounding, by ALBDs as follows:
Nine months ended August 31,
----------------------------------
2008
Constant
2008 Dollar 2007
---- ------ ----
(in millions, except ALBDs and costs per ALBD)
Cruise operating expenses $6,651 $6,495 $5,382
Cruise selling and administrative expenses 1,197 1,162 1,129
------ ------ ------
Gross cruise costs 7,848 7,657 6,511
Less cruise costs included in net cruise
revenues
Commissions, transportation and other (1,743) (1,683) (1,493)
Onboard and other (380) (372) (366)
------ ------ ------
Net cruise costs $5,725 $5,602 $4,652
------ ------ ------
ALBDs 44,034,240 44,034,240 40,338,081
---------- ---------- ----------
Gross cruise costs per ALBD $178.23 $173.88 $161.40
------- ------- -------
Net cruise costs per ALBD $130.03 $127.21 $115.32
------- ------- -------
Net cruise revenues increased $1.2 billion, or 15.2%, to $8.9 billion in 2008 from $7.7
billion in 2007. The 9.2% increase in ALBDs between 2008 and 2007 accounted for $705 million of
the increase, and the remaining $468 million was from increased net revenue yields, which
increased 5.6% in 2008 compared to 2007 (gross revenue yields also increased by 5.4%). Net
revenue yields increased in 2008 primarily due to higher North American ticket prices, the
weaker U.S. dollar relative to the euro and, to a lesser degree, the 0.4 percentage point
increase in our occupancy, partially offset by lower ticket pricing in Europe. Net revenue
yields as measured on a constant dollar basis increased 2.6% in 2008 compared to 2007, which was
comprised of a 3.8% increase in passenger ticket yields, partially offset by a 1.6% decrease in
onboard and other yields, which was largely the result of the significant increase in our
European brands' capacity as they typically have lower onboard and other revenue yields. Gross
cruise revenues increased $1.4 billion, or 15.0%, to $11.0 billion in 2008 from $9.6 billion in
2007 for largely the same reasons as discussed below for net cruise revenues.
Net cruise costs increased $1.1 million, or 23.1%, to $5.7 billion in 2008 from $4.7
billion in 2007. The 9.2% increase in ALBDs between 2008 and 2007 accounted for $426 million of
the increase. The balance of $648 million was from increased net cruise costs per ALBD, which
increased 12.8% in 2008 compared to 2007 (gross cruise costs per ALBD increased 10.4%). This
12.8% increase was primarily due to a 67.7% per metric ton increase in fuel cost to $565 per
metric ton in 2008, which resulted in an increase in fuel expense of $544 million compared to
2007, a weaker U.S. dollar relative to the euro and a $33 million increase in dry-dock expenses
in 2008 compared to 2007. These increases were partially offset by lower selling and
administrative expenses achieved primarily through economies of scale and cost control measures.
Net cruise costs per ALBD as measured on a constant dollar basis increased 10.3% in 2008
compared to 2007. On a constant dollar basis, net cruise costs per ALBD, excluding fuel and
dry-dock costs decreased 0.5. Gross cruise costs increased $1.3 billion, or 20.5%, in 2008 to
$7.8 billion from $6.5 billion in 2007 for largely the same reasons as discussed below for net
cruise costs.
Liquidity and Capital Resources
Sources and Uses of Cash
Our business provided $2.9 billion of net cash from operations during the nine months ended
August 31, 2008, a decrease of $333 million, or 10.4%, compared to fiscal 2007. At August 31,
2008 and 2007, we had working capital deficits of $3.8 billion and $4.4 billion, respectively.
Our August 31, 2008 deficit included $2.9 billion of customer deposits, which represent the
passenger revenues we collect in advance of sailing and, accordingly, is substantially all a
deferred revenue item rather than an actual current cash liability. We use our long-term ship
assets to realize a portion of this deferred revenue in addition to consuming current assets.
In addition, our August 31, 2008 working capital deficit included $1.2 billion of current debt
obligations, which included $232 million of convertible debt subject to a put option, which if
not put to us will not impact our liquidity. After excluding these customer deposits and
current debt obligations from our working capital deficit balance, our non-GAAP adjusted working
capital is $324 million. We continue to generate substantial cash from operations and have an
A- credit rating, which provides us with financial flexibility, in most financial credit market
environments, to refinance our current debt. Accordingly, we believe we have the ability to
maintain a substantial working capital deficit, as well as flexibility to meet our operating,
investing and financing needs. As explained above, our business model allows us to operate with
a significant working capital deficit and, accordingly, we believe we will continue to have a
working capital deficit in the foreseeable future.
During the nine months ended August 31, 2008, our net expenditures for capital projects
were $2.7 billion, of which $2.3 billion was spent for our ongoing new shipbuilding program,
including $1.7 billion for the final delivery payments for the Ventura, AIDAbella, Eurodam and
Carnival Splendor. In addition to our new shipbuilding program, we had capital expenditures of
$276 million for ship improvements and refurbishments and $110 million for Alaska tour assets,
cruise port facility developments, information technology and other assets. Also during the
nine months ended August 31, 2008, we received a $41 million final payment on the 2003 sale of
Holland America Line's Nieuw Amsterdam to Louis Cruise Line.
During the nine months ended August 31, 2008, we borrowed $5.0 billion of long-term debt,
primarily under our long-term revolving credit facility (the "Facility") and ship financing
facilities, and we repaid $4.2 billion of long-term debt, which primarily included $3.3 billion
under the Facility, $302 million of our 1.75% Notes, and $308 million upon maturity of our 4.4%
and 6.15% fixed rate notes. Finally, we paid cash dividends of $945 million during the nine
months ended August 31, 2008 and purchased $84 million of Carnival Corporation common stock and
Carnival plc ordinary shares in open market transactions in December 2007.
Commitments and Funding Sources
Our contractual cash obligations as of August 31, 2008 have changed compared to November
30, 2007, including new ship orders placed in December 2007, primarily as a result of our debt
and ship delivery payments as noted above. In addition, $860 million of Carnival Corporation
convertible debt that was currently due under put options at November 30, 2007 was not put to us
and, accordingly, this debt is now classified as long-term at August 31, 2008. As noted above,
there is still $232 million of convertible debt remaining due currently, which has a put option
in October 2008 and, accordingly, is classified as a current liability at August 31, 2008.
At August 31, 2008, we had liquidity of $3.9 billion, which consisted of $792 million of
cash and cash equivalents, $857 million available for borrowing under our Facility, $1.0 billion
under our short-term revolving credit facilities, and $1.3 billion under committed ship
financing facilities. Substantially all of our Facility matures in 2012. In September 2008, we
terminated $30 million of our $1.0 billion short-term revolving credit facilities, thus reducing
our August 31, 2008 liquidity by such amount. In June 2007 we entered into an agreement to sell
Cunard Line's QE2 for delivery to the buyer in November 2008 for $100 million. A key to our
access to liquidity is the maintenance of our strong credit ratings.
Based primarily on our historical results, current financial condition and forecasts, we
believe that our existing liquidity and cash flow from future operations will be sufficient to
fund the majority of our expected capital projects (including shipbuilding commitments), debt
service requirements, convertible debt redemptions, dividend payments, working capital and other
firm commitments over the next several years. In addition, we believe that in most financial
credit market environments we will be able to secure the necessary financings from banks or
through the offering of debt and/or equity securities in the public or private markets or take
other actions to fund our remaining future cash requirements. However, our cash flow from
future operations, as well as our credit ratings and our ability to obtain financing, may be
adversely affected by various factors including, but not limited to, those factors noted under
"Cautionary Note Concerning Factors That May Affect Future Results."
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
During the nine months ended August 31, 2008, we entered into foreign currency forwards and
options that are designated as cash flow hedges of the remaining Carnival Dream shipyard euro
payments to lock-in a blended exchange rate of at most $1.584 to the euro and, accordingly, we
will have a maximum payment of $723 million for these remaining shipyard payments. However, as
a result of the currency options, which are for 50% of these remaining payments, we will benefit
if the dollar exchange rate is below $1.584 to the euro.
In addition, we had fair value forward purchase hedges for $532 million that were settled
in March 2008 at the time we took delivery of Ventura, and in June 2008 we settled $100 million
of fair value forward purchases and used $395 million of designated euro cash balances to pay
for a portion of the Carnival Splendor purchase price.
At August 31, 2008, 56%, 35% and 9% (53%, 37% and 10% at November 30, 2007) of our debt was
U.S. dollar, euro and sterling-denominated, respectively, including the effect of foreign
currency swaps.
Off-Balance Sheet Arrangements
We are not a party to any off-balance sheet arrangements, including guarantee contracts,
retained or contingent interests, certain derivative instruments and variable interest entities,
that either have, or are reasonably likely to have, a current or future material effect on our
financial statements.
SCHEDULE B
CARNIVAL CORPORATION & PLC - U.S. GAAP CONSOLIDATED FINANCIAL STATEMENTS
CARNIVAL CORPORATION & PLC
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in millions, except per share data)
Three Months Nine Months
Ended August 31, Ended August 31,
--------------- ---------------
2008 2007 2008 2007
---- ---- ---- ----
Revenues
Cruise
Passenger tickets $3,658 $3,206 $ 8,684 $7,437
Onboard and other 864 816 2,309 2,120
Other 292 299 351 352
------ ------ ------- ------
4,814 4,321 11,344 9,909
------ ------ ------- ------
Costs and Expenses
Operating
Cruise
Commissions, transportation and other 660 583 1,743 1,493
Onboard and other 134 146 380 366
Fuel 529 288 1,346 762
Payroll and related 381 344 1,106 976
Food 231 200 648 556
Other ship operating 505 427 1,428 1,229
Other 194 201 256 261
------ ------ ------- ------
Total 2,634 2,189 6,907 5,643
Selling and administrative 372 363 1,222 1,153
Depreciation and amortization 323 279 936 811
------ ------ ------- ------
3,329 2,831 9,065 7,607
------ ------ ------- ------
Operating Income 1,485 1,490 2,279 2,302
Nonoperating (Expense) Income
Interest income 8 20 30 47
Interest expense, net of capitalized interest (108) (95) (308) (273)
Other income, net 1 6
------ ------ ------- ------
(100) (74) (272) (226)
------ ------ ------- ------
Income Before Income Taxes 1,385 1,416 2,007 2,076
Income Tax Expense, Net (52) (39) (48) (26)
------ ------ ------- ------
Net Income $1,333 $1,377 $ 1,959 $2,050
------ ------ ------- ------
Earnings Per Share
Basic $ 1.70 $ 1.73 $ 2.49 $ 2.58
------ ------ ------- ------
Diluted $ 1.65 $ 1.67 $ 2.43 $ 2.51
------ ------ ------- ------
Dividends Per Share $ 0.40 $ 0.35 $ 1.20 $0.975
------ ------ ------- ------
The accompanying notes are an integral part of these consolidated financial statements.
CARNIVAL CORPORATION & PLC
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in millions, except par values)
August 31, November 30, August 31,
2008 2007 2007
---- ---- ----
ASSETS
Current Assets
Cash and cash equivalents $ 792 $ 943 $ 1,412
Short-term investments 9 17 341
Trade and other receivables, net 642 436 423
Inventories 365 331 297
Prepaid expenses and other 245 249 249
------ -------- ------
Total current assets 2,053 1,976 2,722
------ -------- ------
Property and Equipment, Net 27,735 26,639 25,134
Goodwill 3,500 3,610 3,356
Trademarks 1,359 1,393 1,334
Other Assets 631 563 642
------- ------- -------
$35,278 $34,181 $33,188
------- ------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term borrowings $ 63 $ 115 $ 311
Current portion of long-term debt 888 1,028 1,366
Convertible debt subject to current put options 232 1,396 1,170
Accounts payable 505 561 468
Accrued liabilities and other 1,224 1,353 1,212
Customer deposits 2,917 2,807 2,620
------- ------- -------
Total current liabilities 5,829 7,260 7,147
------- ------- -------
Long-Term Debt 8,345 6,313 5,735
Other Long-Term Liabilities and Deferred Income 783 645 598
Contingencies (Note 3)
Shareholders' Equity
Common stock of Carnival Corporation; $0.01 par
value; 1,960 shares authorized; 643 at 2008
and November 2007 and 642 shares at August 2007
issued 6 6 6
Ordinary shares of Carnival plc; $1.66 par
value; 226 shares authorized; 213 shares at
2008 and 2007 issued 354 354 354
Additional paid-in capital 7,666 7,599 7,577
Retained earnings 13,925 12,921 12,878
Accumulated other comprehensive income 666 1,296 885
Treasury stock; 19 shares at 2008 and November
2007 and 18 shares at August 2007 of Carnival
Corporation and 51 shares at 2008, 50 shares
at November 2007 and 45 shares at August 2007
of Carnival plc, at cost (2,296) (2,213) (1,992)
------- ------- -------
Total shareholders' equity 20,321 19,963 19,708
------- ------- -------
$35,278 $34,181 $33,188
------- ------- -------
The accompanying notes are an integral part of these consolidated financial statements.
CARNIVAL CORPORATION & PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in millions)
Nine Months
Ended August 31,
---------------
2008 2007
---- ----
OPERATING ACTIVITIES
Net income $1,959 $2,050
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 936 811
Share-based compensation 41 51
Other (12) 12
Changes in operating assets and liabilities
Receivables (244) (125)
Inventories (41) (32)
Prepaid expenses and other (28) (28)
Accounts payable (47) 34
Accrued and other liabilities 124 156
Customer deposits 191 283
------ ------
Net cash provided by operating activities 2,879 3,212
------ ------
INVESTING ACTIVITIES
Additions to property and equipment (2,723) (2,376)
Purchases of short-term investments (3) (1,418)
Sales of short-term investments 10 1,098
Other, net 2 (152)
------ ------
Net cash used in investing activities (2,714) (2,848)
------ ------
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 5,005 1,587
Principal repayments of long-term debt (4,162) (812)
Dividends paid (945) (713)
Purchases of treasury stock (84) (107)
Repayments of short-term borrowings, net (70) (130)
Proceeds from exercise of stock options 16 44
Other (18) (5)
------ ------
Net cash used for financing activities (258) (136)
------ ------
Effect of exchange rate changes on cash and cash equivalents (58) 21
------ ------
Net (decrease) increase in cash and cash equivalents (151) 249
Cash and cash equivalents at beginning of period 943 1,163
------ ------
Cash and cash equivalents at end of period $ 792 $1,412
------ ------
The accompanying notes are an integral part of these consolidated financial statements.
CARNIVAL CORPORATION & PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - Basis of Presentation
Carnival Corporation is incorporated in Panama, and Carnival plc is incorporated in England
and Wales. Carnival Corporation and Carnival plc operate a dual listed company ("DLC"), whereby
the businesses of Carnival Corporation and Carnival plc are combined through a number of
contracts and through provisions in Carnival Corporation's articles of incorporation and by-laws
and Carnival plc's memorandum of association and articles of association. The two companies
operate as if they are a single economic enterprise, but each has retained its separate legal
identity.
The accompanying consolidated financial statements include the accounts of Carnival
Corporation and Carnival plc and their respective subsidiaries. Together with their
consolidated subsidiaries they are referred to collectively in these consolidated financial
statements and elsewhere in this joint Quarterly Report on Form 10-Q as "Carnival Corporation &
plc," "our," "us," and "we."
The accompanying consolidated balance sheets at August 31, 2008 and 2007, the consolidated
statements of operations for the three and nine months ended August 31, 2008 and 2007 and the
consolidated statements of cash flows for the nine months ended August 31, 2008 and 2007 are
unaudited and, in the opinion of our management, contain all adjustments, consisting of only
normal recurring adjustments, necessary for a fair presentation. Our interim consolidated
financial statements should be read in conjunction with the audited consolidated financial
statements and the related notes included in the Carnival Corporation & plc 2007 joint Annual
Report on Form 10-K. Our operations are seasonal and results for interim periods are not
necessarily indicative of the results for the entire year.
NOTE 2 - Debt
At August 31, 2008, unsecured short-term borrowings consisted of euro and U.S. dollar-
denominated bank loans of $57 million and $6 million, respectively, with an aggregate weighted-
average interest rate of 4.5%.
In April 2008, we amended the terms of Carnival Corporation's 1.75% convertible notes (the
"1.75% Notes") to give the holders another put option, which, if exercised, requires us to
repurchase all or a portion of the outstanding 1.75% Notes on October 29, 2009 at their
accreted value, and suspends our right to redeem the 1.75% Notes until that date. The $8
million estimated fair value of this new put option is being amortized to interest expense over
its eighteen-month term using the straight-line method, which approximates the effective
interest rate method. In addition, we amended the terms of the 1.75% Notes to include an
additional semi-annual cash interest payment of 0.5% per annum through October 29, 2009 and
certain other covenants and agreements for the benefit of the holders of this debt. On April
30, 2008, as a result of certain holders exercising their April 29, 2008 put option, we
repurchased $302 million of the outstanding 1.75% Notes at their accreted value, plus accrued
interest, leaving $273 million of the 1.75% Notes outstanding at their accreted value. At
August 31, 2008, the 1.75% Notes have a 4.6% yield through October 29, 2009.
At August 31, 2008, our 1.75% Notes and 2% convertible notes ("2% Notes") were both
classified as long-term liabilities, since the next time we may be required to redeem these
notes at the option of the holders is on October 29, 2009 and April 15, 2011, respectively. In
addition, the Carnival Corporation common stock trigger prices of $39.92 to $40.67 for the
Carnival Corporation zero-coupon convertible notes and $43.05 for the 2% Notes, which are
required to be met in order to allow the conversion of these notes, were not met for the
defined duration of time in the first three quarters of fiscal 2008 and, accordingly, these
notes were not convertible during the second and third quarters of fiscal 2008 and are not
convertible during the fourth quarter of fiscal 2008. The 1.75% Notes Carnival Corporation
common stock trigger price, which is currently $64.10, has not been met since their issuance.
In March 2008, our Ibero Cruises brand entered into two 364-day loan facilities
aggregating $161 million at August 31, 2008, which are guaranteed by Carnival Corporation and
Carnival plc. This Ibero Cruises debt, along with another $584 million of other short-term
debt, has been classified as long-term debt at August 31, 2008, as we have the intent and
ability to refinance this debt on a long-term basis.
In March 2008, we also borrowed $523 million under an unsecured term loan facility, the
proceeds of which were effectively used to pay a portion of P&O UK's Ventura purchase price.
This facility bears interest at 4.38% and is repayable in semi-annual installments through
2020.
In June 2008, we borrowed $500 million under a seven-year term loan facility, which was
used in part to finance a portion of the purchase price of Holland America Line's Eurodam.
This facility has a fixed interest rate of 4.41%, although the lenders have a one-time option
to switch the borrowing rate to LIBOR plus 0.55% on the loan's third anniversary. Also, in
June 2008, we borrowed $443 million under an unsecured term loan facility, which proceeds were
used to pay a portion of Carnival Splendor's purchase price. This facility has a fixed
interest rate of 4.21%, and is repayable in semi-annual installments through 2020.
In June 2008, we obtained an unsecured term loan financing facility, bearing a fixed
interest rate of 4.21%, which provides us with the ability to borrow up to $353 million for a
portion of Ruby Princess' purchase price. This ship is expected to be delivered in October
2008. This facility is repayable semi-annually over a 12 year period.
NOTE 3 - Contingencies
Litigation
The Office of the Attorney General of Florida ("Attorney General") is conducting an
investigation to determine whether there is or has been a violation of Florida antitrust laws in
connection with the setting by us and other unaffiliated cruise lines of our respective fuel
supplements. We are providing our full cooperation to the Attorney General's office. At this
time, we are unable to determine the ultimate outcome of these reviews on our financial
statements.
In January 2006, a lawsuit was filed against Carnival Corporation and its subsidiaries and
affiliates, and other unaffiliated cruise lines in New York on behalf of a purported class of
owners of intellectual property rights to musical plays and other works performed in the U.S.
The plaintiffs claim infringement of copyrights to Broadway, off Broadway and other plays. The
suit seeks payment of (i) damages, (ii) disgorgement of alleged profits and (iii) an injunction
against future infringement. In the event that an award is given in favor of the plaintiffs, the
amount of damages, if any, which Carnival Corporation and its subsidiaries and affiliates would
have to pay is not currently determinable. The ultimate outcome of this matter cannot be
determined at this time. However, we intend to vigorously defend this matter.
In the normal course of our business, various other claims and lawsuits have been filed or
are pending against us. Most of these claims and lawsuits are covered by insurance and,
accordingly, the maximum amount of our liability, net of any insurance recoverables, is
typically limited to our self-insurance retention levels. However, the ultimate outcome of
these claims and lawsuits which are not covered by insurance cannot be determined at this time.
Contingent Obligations - Lease Out and Lease Back Type Transactions
At August 31, 2008, Carnival Corporation had estimated contingent obligations totaling
$1.06 billion, excluding termination payments as discussed below, to participants in lease out
and lease back type transactions for three of its ships. At the inception of these leases, the
aggregate of the net present value of these contingent obligations was paid by Carnival
Corporation to a group of major financial institutions, including American International Group
Inc. ("AIG"), who agreed to act as payment undertakers and directly pay these obligations.
Accordingly, these obligations are considered extinguished, and neither the funds nor the
contingent obligations have been included on our balance sheets.
In the event that Carnival Corporation were to default on its obligations and assuming
performance by all other participants, we estimate that we would, as of August 31, 2008, be
responsible for a termination payment of approximately $200 million. Between 2017 and 2022, we
have the right to exercise options that would terminate these three lease transactions at no
cost to us.
In certain cases, if the credit ratings of the financial institutions who are directly
paying the contingent obligations fall below AA- then Carnival Corporation will be required to
replace these financial institutions with other financial institutions whose credit ratings are
at least AA or meet other specified credit requirements. In such circumstances we would incur
additional costs, although we estimate that they would be immaterial to our financial
statements. Other than AIG, as discussed below, all of these financial institutions have credit
ratings of AA/AAA. If Carnival Corporation's credit rating, which is A-, falls below BBB, it
would be required to provide a standby letter of credit for $70 million, or alternatively
provide mortgages for this aggregate amount on two of these ships.
In September 2008, the credit ratings of AIG and its subsidiaries involved with two of
these transactions were downgraded from AA- to A-. As a result of this downgrade, AIG is
required to pledge collateral to support their payment obligations in amounts that will be
determined in accordance with the terms of the payment undertaking agreements. Based on the
recently announced $85 billion revolving credit facility from the Federal Reserve Bank of New
York to AIG, we believe that it is likely that AIG will continue to perform its obligations
under the payment undertaking agreements. In the unlikely event that AIG does not pledge
collateral as required, the estimated amount of our loss will range from zero to approximately
$170 million, depending on numerous factors.
Contingent Obligations - Other
Some of the debt agreements that we enter into include indemnification provisions that
obligate us to make payments to the counterparty if certain events occur. These contingencies
generally relate to changes in taxes, changes in laws that increase lender capital costs and
other similar costs. The indemnification clauses are often standard contractual terms and were
entered into in the normal course of business. There are no stated or notional amounts included
in the indemnification clauses and we are not able to estimate the maximum potential amount of
future payments, if any, under these indemnification clauses. We have not been required to make
any material payments under such indemnification clauses in the past and, under current
circumstances, we do not believe a request for material future indemnification payments is
probable.
NOTE 4 - Comprehensive Income
Comprehensive income was as follows (in millions):
Three Months Nine Months
Ended August 31, Ended August 31,
--------------- ---------------
2008 2007 2008 2007
---- ---- ---- ----
Net income $1,333 $1,377 $1,959 $2,050
Items included in accumulated other comprehensive
income
Foreign currency translation adjustment (588) 114 (578) 227
Changes related to cash flow derivative hedges (29) (1) (27) (3)
Pension liability adjustment (17) (17)
Unrealized loss on marketable security (6) (8)
------ ------ ------ ------
Total comprehensive income $ 693 $1,490 $1,329 $2,274
------ ------ ------ ------
NOTE 5 - Segment Information
Our cruise segment includes all of our cruise brands, which have been aggregated as a
single reportable segment based on the similarity of their economic and other characteristics,
including the products and services they provide. Substantially all of our other segment
represents the hotel, tour and transportation operations of Holland America Tours and Princess
Tours.
Selected segment information for our cruise and other segments was as follows (in
millions):
Three Months Ended August 31,
-----------------------------------------------------------
Selling Depreciation
Operating and admin- and Operating
Revenues expenses istrative amortization income
-------- -------- --------- ------------ ------
2008
Cruise $4,522 $2,440 $ 364 $314 $1,404
Other 399 301 8 9 81
Intersegment elimination (107) (107)
------ ------ ------ ---- ------
$4,814 $2,634 $ 372 $323 $1,485
------ ------ ------ ---- ------
2007
Cruise $4,022 $1,988 $ 355 $271 $1,408
Other 399 301 8 8 82
Intersegment elimination (100) (100)
------ ------ ------ ---- ------
$4,321 $2,189 $ 363 $279 $1,490
------ ------ ------ ---- ------
Nine months ended August 31,
-----------------------------------------------------------
Selling Depreciation
Operating and admin- and Operating
Revenues expenses istrative amortization income
-------- -------- --------- ------------ ------
2008
Cruise $10,993 $6,651 $1,197 $909 $2,236
Other 478 383 25 27 43
Intersegment elimination (127) (127)
------- ------ ------ ---- ------
$11,344 $6,907 $1,222 $936 $2,279
------- ------ ------ ---- ------
2007
Cruise $ 9,557 $5,382 $1,129 $785 $2,261
Other 468 377 24 26 41
Intersegment elimination (116) (116)
------- ------ ------ ---- ------
$ 9,909 $5,643 $1,153 $811 $2,302
------- ------ ------ ---- ------
NOTE 6 - Earnings Per Share
Our basic and diluted earnings per share were computed as follows (in millions, except per
share data):
Three Months Nine Months
Ended August 31, Ended August 31,
--------------- ---------------
2008 2007 2008 2007
---- ---- ---- ----
Net income $1,333 $1,377 $1,959 $2,050
Interest on dilutive convertible notes 9 9 26 26
------ ------ ------ ------
Net income for diluted earnings per share $1,342 $1,386 $1,985 $2,076
------ ------ ------ ------
Weighted-average common and ordinary shares
outstanding 786 794 786 794
Dilutive effect of convertible notes 27 33 30 33
Dilutive effect of stock plans 1 2 2 2
------ ----- ------ -----
Diluted weighted-average shares outstanding 814 829 818 829
------ ----- ------ -----
Basic earnings per share $ 1.70 $1.73 $ 2.49 $2.58
------ ----- ------ -----
Diluted earnings per share $ 1.65 $1.67 $ 2.43 $2.51
------ ----- ------ -----
Options to purchase 12.0 million (8.4 million in 2007) and 11.9 million (6.8 million in
2007) shares for the three and nine months ended August 31, 2008, respectively, were excluded
from our diluted earnings per share computations since the effect of including them was anti-
dilutive.
NOTE 7 - Recent Accounting Pronouncements
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation
No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN 48"). FIN 48 clarifies, among other
things, the accounting for uncertain income tax positions by prescribing a minimum probability
threshold that a tax position must meet before a financial statement income tax benefit is
recognized. The minimum threshold is defined as a tax position that, based solely on its
technical merits, is more likely than not to be sustained upon examination by the relevant
taxing authority. The tax benefit to be recognized is measured as the largest amount of benefit
that is greater than fifty percent likely of being realized upon ultimate resolution. FIN 48
must be applied to all existing tax positions upon adoption. The cumulative effect of applying
FIN 48 at adoption is required to be reported separately as an adjustment to the opening balance
of retained earnings in the year of adoption. Our adoption of FIN 48 on December 1, 2007 did not
have a material impact on our opening retained earnings. In addition, based on all known facts
and circumstances and current tax law, we believe that the total amount of our uncertain income
tax position liabilities and related accrued interest are not material to our August 31, 2008
financial position.
In September 2006, the FASB issued Statement of Financial Accounting Standards ("SFAS") No.
157, "Fair Value Measurements." SFAS No. 157 defines fair value, establishes a framework for
measuring fair value and expands disclosure requirements about fair value measurements. In
February 2008, the FASB released a FASB Staff Position, which delayed our effective date of SFAS
No. 157 for all nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring basis until
December 1, 2008. SFAS No. 157 was first effective for us on December 1, 2007. The adoption of
SFAS No. 157 on our financial assets and liabilities, which are principally comprised of cash
equivalents and derivatives, did not have a significant impact on their fair value measurements
or require expanded disclosures since the fair value of those financial assets and liabilities
outstanding during the three and nine months ended August 31, 2008 were not material.
In May 2008, the FASB issued Financial Accounting Standards Board Staff Position Accounting
Principles Board 14-1 "Accounting for Convertible Debt Instruments That May Be Settled in Cash
upon Conversion (Including Partial Cash Settlement)" ("APB 14-1"). APB 14-1 requires the issuer
of certain convertible debt instruments that may be settled in cash, or other assets, on
conversion to separately account for the debt and equity components in a manner that reflects
the issuer's non-convertible debt borrowing rate. APB 14-1 will be adopted by us in the first
quarter of fiscal 2010 on a retrospective basis. We believe that the impact of adopting APB 14-
1 will not have a material effect on previously reported diluted earnings per share, however,
our net income will be reduced. We are still in the process of determining the amount of such
reductions.
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